Fidelity vs pontera

Last night I was chilling in my pool around 8pm after playing a couple of hours of pickleball (I live in Florida, don’t judge! - lol)

I opened a Sam Adams (Octoberfest) and picked up my cell phone.

I was surprised by the number of emails I received forwarding me the “breaking news” from Financial Advisor IQ. The title of the article was, “Fidelity to Block Credential Sharing on 401(k) accounts; Pontera Rallies FA Troops”. (Click the picture below to read the full article).

I was not shocked by Fidelity’s decision and here is why. . .

In addition to being an “ERISA Nerd”, I am the co-founder of Plan Confidence Corp.

Plan Confidence is a fintech firm that does the research, advice, documentation and (seamlessly) delivers a financial firm’s advice to their “held away” participants; all while ensuring their ERISA compliance.

Over the past several years, there have been a couple of technology companies allowing the ability for advisers to place trades for “held away” accounts, by “duping” the custodians to believe the client logged in.

We have embraced this technology at Plan Confidence and even enhanced our software to deliver “Trade Files” to advisers with the click of a button.

This was done intentionally, so financial advisers could easily implement their advice into Pontera, thus creating a paper trail from ERISA compliant advice through implementation.  The combination of our software plus Pontera saved adviser’s a ton of time when (compliantly) working with “held away” accounts.

Fidelity, Vanguard, Schwab, etc have very smart people working for them.

They knew about Pontera and advisers wanting to help their clients better manage their 401(k) accounts. Pontera made this easy for advisers to do.

So, why would Fidelity have an issue with this? 

Because the way Pontera “dupes” the custodians.

Pontera captures the participant’s Username, login and (amends) the two factor authentication (2FA).

The adviser programs Pontera, never having access to the custodian or the participant’s credentials and Pontera “communicates” the trades to the custodian. When they “communicate” this information, they are logging in with the participant’s Username, password and 2FA.

So, Pontera is good at letting adviser’s trade their clients “held away” accounts and avoid SEC custody issues.

However, the adviser’s client is also Fidelity’s client!

And Fidelity has responsibilities to that client as well. And having them share their credentials puts Fidelity in the awkward position of tacitly allowing a third party to access a 401(k) account that Fidelity needs (legally) to protect.

So, Fidelity made the announcement they are not going to allow third party credential sharing anymore. I know Fidelity’s announcement may change the way many advisers work with “held away” accounts after 10/2/2024.

Please be assured that I have personally reached Fidelity to gather more information and see if they have an API that can implement your trades without the need for credential sharing.

I think it is imperative that I speak with the other three companies that are on the Kitces Fintech Map in the “held away assets” category (which was just recently added). 

I’ve already talked to Absolute Capital and I’ve reached out Pontera and Future Capital to get their opinions, so I can stay at the forefront of advisers (compliantly) working with their “held away” accounts.

As soon as I know more, I will let you know more.

Until then, stay confident my friends!

-The ERISA Nerd

To read the full article, click the picture below: